Bio-Techne Corp

Good morning and welcome to Biotechni Earnings conference call for the fourth quarter of fiscal 2022. At this time, all participants have been placed in listen-only mode and the call will be open for questions following management's prepared remarks. During our Q&A session, please limit yourself to one question and a follow-up. I would now like to turn the call over to David Clare, Biotechni's Vice President, Investor Relations and Corporate Development. Please go ahead.

Good morning, and thank you for joining us. On the call with me this morning are Chuck Cometh, Chief Executive Officer, and Jim Hippel, Chief Financial Officer of Biotechni. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results, as well as the potential impact of the COVID-19 pandemic on our operations and financial results. The company's 10-K for fiscal year 2021 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-K, as well as the company's other SEC filings, are available on the company's website within its investor relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier this morning on the Biotechnique Corporation website at www.bio-technique.com. Separately, we will be presenting at the Wells Fargo, Baird, and Morgan Stanley Healthcare conferences in September. We look forward to connecting with many of you at these upcoming conferences. I will now turn the call over to Chuck.

Thanks, Dave, and good morning, everyone. Thank you for joining us for our fourth quarter conference call. We had a tremendous finish to our fiscal 2022 as our 14% organic growth for the fourth quarter capped a year where we delivered 17% organic growth for the full fiscal year. In our fiscal 2022, we surpassed an important milestone as we exceeded $1 billion, actually $1.1 billion, in revenue for the first time in our corporate history. These strong results were delivered in the face of the most challenging comp the company has faced since I joined in 2013, and the impact of a longer than expected COVID-related shutdown in China. I'm extremely proud of the global team's strong execution in this dynamic environment. Some of the highlights in the quarter include continued strength in our biologics instrument portfolio, where we delivered over 30% growth for the seventh consecutive quarter, ongoing traction with our cell and gene therapy workflow initiatives, a return to double-digit growth in our spatial biology business, as well as another consecutive record-setting quarter for our ExoDx prostate test. We remain incredibly well-positioned and underpenetrated in some of the fastest-growing life science tools and diagnostics markets, And our portfolio of proteomic, genomic, and diagnostic products continue to deliver the solutions necessary to drive scientific discoveries and ultimately improve health care. Given the inflationary environment we are all dealing with, let's briefly discuss how we are successfully navigating these challenges. As a reminder, approximately 80% of our revenue mix is consumables, and encouragingly, given their biological nature, these tend to have more modest raw material costs. Approximately 10% of our sales are instrumentation, where we do have higher input costs, but still maintain gross margins in line with corporate averages. We have been strategically implementing price increases throughout our portfolio to offset our exposure to rising costs, including labor, and we'll continue to pull this lever going forward. Speaking of labor... We made significant progress on our human capital initiatives in the quarter. Encouragingly, we are seeing signs of an improving labor market as some of the headwinds we faced in recent quarters to attract and retain talent appear to be subsiding. In fiscal 2022, we added over 400 individuals to the team and have grown to over 3,000 biotechnology team members. These net headcount additions work across the organization as we strengthen the commercial, technical, and corporate team at all levels. We will continue to hire as we execute our strategic growth initiatives going forward, and I'm very encouraged with the recent progress on this front. Now let's discuss the specifics of our performance this quarter, starting with our geographies and end markets. From a global perspective, we experienced robust growth across geographies with the exception of China. Our North American revenue grew in the upper teens for both the quarter and our fiscal year. In Europe, we finished on a very strong note as we grew in the mid-teens for both the quarter and the fiscal year. For China, first I'd like to recognize the relentless efforts of the team. Our China-based team successfully petitioned to be one of the initial companies permitted to return to work as our products were deemed to be critical to the country. Once we were allowed back in our Shanghai-based warehouse that serves as a distribution hub, To all of our China-based customers, our dedicated team literally lived in the facility to ensure we were able to begin supplying the research community with proteomic reagents, analytical tools, and spatial biology products. These COVID-related lockdowns lasted longer than expected in several large cities. Overall, organic revenue in China declined low single digits for the quarter. These important Chinese markets started the reopening process in June, and we saw a nice bounce back in revenue, especially in our research reagents business. The strong June performance is encouraging, and we look forward to returning to our historical growth trajectory in this geography. Once again, our biopharma end market remained very strong, growing over 20% globally for both the quarter and the fiscal 2022. Sales in our academic end market increased in the upper single digits for the quarter and the mid single digits for the fiscal year. We are seeing signs of continued improvement in our U.S. academic end market. as research budget clarity and increased NIH outlays are benefiting spending on our research reagents, proteomic analytical tools, and spatial biology solutions. Now let's discuss our growth platform, starting with our protein sciences segment, where we grew organically by 16% for the quarter and 19% for the fiscal year. During the quarter, we advanced our cell and gene therapy initiatives as our reagents, media, technology, and workflow solutions continue to deliver the necessary solutions to progress therapy development and clinical trials. Before we get into the numbers, I'd like to highlight an emerging cell therapy application called Regenerative Medicine that is garnering significant investment in clinical trial activity, which in turn is driving growth in our technologies and products enabling these workflows. His background, regenerative medicine or RegenMed, leverages stem cells or their derivatives to promote the repair response of diseased, dysfunctional, or injured tissues. Stem cells are unique as they can be induced to differentiate into any cell type. For example, muscle, heart, pancreatic, nerve, and blood cells. This functionality has spawned robust biopharma activity to use stem cells as a treatment and potential cure for many diseases and chronic conditions, including diabetes, tissue repair, spinal cord injury, chronic wound healing, and others. This increased activity is sparking demand across our portfolio of cell therapy products and technologies, including reagents, assays, media, instruments, and spatial biology products. Our portfolio of GMP proteins includes 19 cytokines, including 11 that are only available from Biotechni, that are key to scaling these RegenMed activities. This interest in RegenMed is also acting as a significant tailwind for our matrix products, as these provide structural support for cells and play an important role in establishing tissue organization by influencing cell adhesion, proliferation, migration, and differentiation. Our portfolio of Matrix products increased over 110% in the quarter and are quickly becoming significant contributors to our burgeoning cell and gene therapy business. Specifically for our GMP protein business, during the quarter we transitioned two additional GMP proteins to our state-of-the-art GMP protein dedicated manufacturing facility. Following these latest launches, we are now manufacturing five GMP proteins in this new facility at the scale and capacity necessary to meet current forecasted demand. Overall, our portfolio of cell and gene therapy products, technologies, and solutions increased over 50% for fiscal 2022. Now let's discuss performance of our research reagent portfolio, including our broad catalog of RUO proteins and antibodies. Once again, our brand reputation targeted new product introductions, marketing strategy, and execution growth above market growth as our research reagents increased low teens for the quarter and mid-teens for fiscal 2022. During the fiscal year, we added approximately 1,000 new R&D systems, branded proteins, antibodies, and small molecules, including research reagents strengthening our core portfolio in immunology, immune oncology, and targeted protein degradation. Shifting to our proteomic analytical tools, where the team delivered mid-teens growth for the quarter and high teens growth for the fiscal year, once again our biologics platform, Marie's, led the way, increasing worth 35% in the quarter. This marks the seventh consecutive quarter of above 30% growth for this platform, as we continue to see strong demand from protein therapeutics, gene therapy, and CRO, CDMO customers. We recently dramatically improved maurice's speed with the launch of the Turbo CESDS cartridge. This new cartridge delivers a 400% throughput increase compared to legacy cartridges, enabling higher speed and high resolution analysis of protein size and purity across all stages of bioprocess development, as well as regulated areas, including quality control. Separately, a multi-company study published in the Journal of Electrophoresis showed excellent comparability of maurice to its predecessor instrument, ICE3. As background, we launched Marese in 2016 as the next generation system in our ICE instrument portfolio. Multiple biopharma companies have requested comparability data between ICE 3 and Marese prior to upgrading, and we anticipate this study will help these customers eventually transition to Marese, which offers ease of use and increased functionality compared to the legacy system. Our Simple Western portfolio of automated Western blot solutions continues to gain share as the ease of use, reproducibility, and speed compared to manual methods resonates with both biopharma and academic end users. This growing awareness and utilization of Simple Western is evident when looking at the number of publications citing Simple Western data. As of the end of the quarter, there were over 1,600 cumulative publications citing our Simple Western technology, representing an increase of 12% during the first half of calendar 2022. We view publications as a leading indicator for the growing acceptance of this technology and believe we are positioned for continued growth going forward. Our Simple Western business increased in the mid-teens for the quarter and in the high teens for the fiscal year. We continue to experience strong demand for our SimplePlex automated amino assay platform, ELA, from Salon Gene Therapy customers as our recent assay additions for AAV characterization, PEC293 host cell proteins, and perform drive adoption in both process development and QC release. In fact, we increased the number of CGT customers, cell and gene therapy that is, leveraging Ella in their workflow by over 65% during the fiscal year and anticipate growing interest from additional accounts as we continue to expand our relevant menu offerings. During the quarter, we announced the latest addition to our family of instruments and consumables with the acquisition of Namocel, a leading cell sorting and dispensing company with two instruments currently on the market. Namocel's proprietary instruments and consumables address several high-growth markets, including cell and gene therapy, cell engineering, cell line development, single-cell genomics, antibody discovery, synthetic biology, and rare cell isolation. While NAML Cell's business is relatively small today, it is growing quickly, and we are excited to have this technology and talented team under the biotechnology umbrella. We closed this acquisition on July 1st, and initial integration work is progressing nicely. Lastly, our immunoassay kit business finished the year on a very strong note as this business grew low double digits for both the quarter and the fiscal year. In addition to healthy demand for our ELISA kit, we are increasingly being recognized as the partner of choice for developing luminex assays for our partners to run as lab-designated tests, or LDTs. For example, we recently announced an agreement as the exclusive manufacturer of Nonogen's Biosciences Oncuria Bladder Cancer Diagnostic Panel. This luminex-based multiplex panel combines biotechnics, high-quality reagents, and over 40 years of industry-leading immunoassay experience with Nonogen's diagnostic experience to create a powerful solution to advance bladder cancer treatment strategies. Next, let's discuss our diagnostics and genomics segment, where we grew revenue organically by 8% in the quarter and 10% for the full fiscal year. Our spatial biology business, branded ACD, remains the largest global spatial biology business as our highly sensitive biomarker identification technology with single-cell detection, resolution, and quantification capabilities continues to enable the transition from discovery to translation of research. Spatial biology returned a double-digit growth in the quarter as an improving academic market and the impact of our fortified leadership and North American commercial teams offset a challenging year-over-year comp and the impact of the China shutdown. During the quarter, we achieved a significant milestone for our spatial biology businesses. Our market-leading portfolio crossed 40,000 unique RNA-scope in-situ hybridization probes in over 400 species. We also announced the launch of our CE-IVD-marked RNA-scope ISH probe high-risk HPV assay for use in patients with head and neck cancer to aid in the identification of high-risk human papillomavirus, HPV, for use on the automated Leica Biosystems Bond 3 stainer. With our sales territories occupied, leadership team in place to drive this business forward, and expectations for the U.S. academic market to continue to improve, we are expecting steady improvement in our spatial allergy growth rate in the coming quarters. Moving on to our molecular diagnostics division, let's start with the significant progress our exosome diagnostics business delivered in the quarter. The XODX prostate or epi test continued to benefit from increasing traffic to the physician office for initial or follow-up visits, which in turn drove improving diagnostic testing volumes, including PSA tests, which is a prerequisite for our epi test. This improving physician office environment combined with our digital and traditional marketing initiatives drove almost 70% year-over-year exoDx prostate test volume growth, as testing levels broke a quarterly volume record for the second quarter in a row. The exosome diagnostics team had a strong presence at the American Urological Association, or AUA, conference in May, including the presentation of two posters as well as six in-booth scientific presentations. This was also a great forum to highlight our ongoing partnership with former Baltimore Orioles player, Ironman Cal Ripken Jr., who remains an ambassador and advocate for the ExoDx Prostate Test, which was a part of Cal's own prostate cancer journey. Separately, our Medicare administrative contractor, National Government Services, held a public meeting following our request for reconsideration of our local coverage decision, also known as a LCD. As a reminder, we have made significant progress getting the existing LCD to align with the National Comprehensive Cancer Network, or NCCN, guidelines, although a few key differences remain. Most importantly, the current LCD does not reimburse for repeat usage of our exoDx prostate test or for patients who previously had a negative prostate biopsy. If successful, the reconsidered LCD would remove these limitations, enabling the use of our exoDx prostate test as a surveillance tool. We are encouraged following the opening meeting and are looking forward to the issuance of the final LCD. Continuing the Leclerc Diagnostics, Asurgen had a great quarter as demand for its portfolio of genetic carrier screening kits by Leclerc Diagnostic Controls, as well as initial traction in Europe, drove growth of over 25% in the quarter. In addition to the ongoing geographic expansion, Asurgen has a rich product pipeline, positioning the business for continued growth going forward. Finally, our diagnostics reagents business continues this trend of steady growth in the quarter. The return of patients to the doctor's office is sparking demand for hematology and clinical chemistry tests, which is driving demand for our clinical controls and reagents. Improving patient office visit trends, a full pipeline, and opportunities for additional share gains within our OEM partners set the stage for sustainable growth in our diagnostic reagents business going forward. Most of you probably saw the press release issued this morning announcing the planned leadership transition coming in two years. Following the conclusion of our fiscal 2024, I plan to retire as the CEO of Biotechni and intend to continue to serve as a member of the board of directors. During my tenure, the board and I have built an incredibly strong bench of talented, results-driven leaders that could serve as potential internal replacements. Over the same timeframe, Biotechni has grown into a leading life science tools and diagnostics company, and I have no doubt that our accelerating organic growth profile and sector-leading profitability will attract extremely high-caliber external candidates as well. The board search for a potential replacement has already begun, and we will update you when there is news to share. One thing is certain, with a team now over 3,000 strong and a product portfolio directly aimed at some of the hottest areas of scientific research and diagnostics, Biotechnic is positioned to continue to execute our strategic plan during the next two years under my leadership and beyond. With that, I'll pass the call over to Jim.